Top up loan or Fresh Personal Loan – Which One is Better?
Last Updated : April 7, 2020, 4:38 p.m.
Already servicing a personal loan somewhere and have a new need of say marriage to fulfill? You’ve two options – a top-up loan or a fresh personal loan – at your disposal. A top-up loan is provided by the existing lender, while a fresh personal loan can be given by both existing and new lenders. Since you’re already paying the EMIs, you should choose the option that keeps the payment obligations well under your reach. But the point is how to choose that very option, especially if you’re new to the world of credit. Don’t worry, we’ll tell you how to go about it? So, keep reading!
Parameters Based on Which You Should Take a Call
You should take a rational decision considering your present situation while also keeping an eye on your future. To help you in your decision-making process, we have listed out certain parameters on which you need to evaluate both top-up and a fresh personal loan.
Rate of Interest
The interest rate of top-up loans will be much like that of a personal loan. If the rate is lower than what you see in the market, go and grab the loan offer. Otherwise, you can negotiate with the existing lender to get the desired rate. If it does not oblige, you should ask for a fresh personal loan somewhere else to cut your monthly obligations. However, to take full advantage, the interest rate has to be at least 2%-4% lower than the existing rate. This will reduce both your EMI and interest obligations.
Tenure
Basically top-up loans remain upto the time for which the existing personal loan is there. So, if you’re applying for a top-up loan say after 2 years on the existing personal loan taken for 5 years, the consolidated loan (top-up + existing outstanding balance) will continue for three years. This could raise your EMI a lot higher than what you’re paying right now, calling for necessary adjustments to your daily routine for the successful payment of the installments. For example, if you had taken a loan of INR 5 lakh at 12% interest rate for 5 years, the net outstanding balance must have been INR 3,34,862 after the end of 2 years. You must have been paying an EMI of INR 11,122 till now. If you apply for a top-up amount of INR 1,00,000, the consolidated loan amount will be INR 4,34,862. So, the new EMI must rise to INR 14,444. To accommodate the increased EMI, it is imperative the income is higher from the time you took the loan plus expenses are under your control. In case you haven’t seen much rise in your income over the last 2 years, maybe a fresh personal loan at attractive rates and extended tenure will benefit you.
How Can You Negotiate for a Better Top-up Personal Loan Interest Rate?
You can negotiate for the same based on a solid repayment track and a good credit score. Actually, the second one is the by-product of the first one. So, if you have started servicing the loan a little while ago, make sure you pay your dues on time and maintain a credit score of 700 and above. This will make the lender agree to your request of getting the rate lowered.
Top-up Personal Loan Interest Rate vs Normal Personal Rate
| Lenders | Normal Personal Loan Interest Rate (In Per Annum) | Top-up Personal Loan Interest Rate (In Per Annum) |
|---|---|---|
| State Bank of India (SBI) | 11.00% - 14.00% | 11.45% |
| HDFC Bank | 10.75% - 14.50% | Similar to 10.75% - 14.50% |
| ICICI Bank | 10.75% - 19.00% | Starting from 11.25% |
| Kotak Mahindra Bank | 10.99% Onwards | Starting from 10.99% |
| IndusInd Bank | 10.25% - 26.00% | Similar to 10.25% - 26.00% |
| Bajaj Finserv | 11.00% Onwards | Similar to 11.00% Onwards |
You can even get a top-up loan on other loans such as home loans. The rate of interest on a top-up loan is lower than that of a personal loan. However, the top-up loan rate can be slightly higher than a home loan.
Top-up Home Loan Interest Rates
| Lenders | Interest Rate (In Per Annum) | Maximum Loan Amount Available | Processing Fee | Prepayment Charges | Maximum Loan Tenure |
|---|---|---|---|---|---|
| State Bank of India (SBI) | 8.35%-10.55% | Above INR 5 Crore | 0.40% of the loan amount, subject to a maximum of INR 30,000, plus GST | NIL | Upto 30 Years |
| HDFC Limited | 8.70%-9.20% | Upto INR 50 Lakh |
|
| Upto 15 Years |
| ICICI Bank | 9.00% - 10.05% | Upto INR 25 Lakh | 0.50%-2.00% of the loan amount or INR 1,500 or INR 2,000 for Mumbai, Delhi and Bengaluru, whichever is greater, plus GST. |
| Upto 20 Years |
| Axis Bank | 8.75% - 9.15% | Upto INR 50 Lakh | 1% of the loan amount, subject to a minimum of INR 10,000, plus GST | NIL | Till the time the existing home loan will run |
| Bank of Baroda | 8.50% - 10.60% | Upto INR 2 Crore | 0.25% of the loan amount, subject to a maximum of INR 12,500, plus GST | As Applicable | It will depend on the income and repayment capacity of the individual |
| LIC Housing Finance (LIC HFL) | 9.70%-10.00% | Upto INR 5 Crore | 0.25% of the loan amount plus GST | As applicable | Till the time the existing home loan will run |